C. & A. Construction Co. v. Benning Construction Co.
509 S.W.2d 302 (1974)
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Rule of Law:
When a written contract is clear and unambiguous, extrinsic evidence of prior or contemporaneous oral agreements is inadmissible to contradict, vary, or add to the terms of the instrument. The parol evidence rule is a rule of substantive law that upholds the stability and integrity of written contracts.
Facts:
- The 1st subcontractor and the 2nd subcontractor (appellee) entered into a written agreement for the installation of sewer lines.
- Paragraph 7 of the agreement stated that the 2nd subcontractor would receive '$20,000 for supervision which will be added to the actual cost figure.'
- The agreement also stipulated that the profit, defined as the difference between 'actual cost and bid price,' would be divided between the parties.
- The appellee's president and sole stockholder personally supervised the construction work for the project.
- After being paid $517,451.11, the appellee claimed it was owed an additional sum, which included the salary and living expenses for its president's supervisory work, arguing this was an 'actual cost' separate from the supervision fee.
Procedural Posture:
- Appellee (2nd subcontractor) sued appellant (1st subcontractor) in the trial court for an alleged payment deficit under their contract.
- The case was tried before a judge, sitting as a jury.
- The trial court admitted parol evidence regarding the parties' negotiations and industry customs to interpret the contract.
- The trial court entered a judgment in favor of the appellee for $40,349.11, which included $15,500 for the salary of appellee's president.
- The appellant appealed that portion of the judgment awarding the salary to the state's highest court.
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Issue:
Does a contract clause providing a specific sum for 'supervision' and separately allowing for reimbursement of 'actual cost' unambiguously preclude the payment of a supervisor's salary as a separate 'actual cost,' thereby making parol evidence inadmissible to prove otherwise?
Opinions:
Majority - Frank Holt, Justice
No. A contract clause providing a specific sum for 'supervision' unambiguously covers compensation for supervisory services, and therefore the supervisor's salary cannot be claimed as an additional 'actual cost'. The court reasoned that the language of the contract was 'plain, obvious, and unambiguous,' providing for a definite amount for supervision. If the parties had intended for the president's salary to be an additional reimbursable cost, they could and should have specified this in the written agreement. The court invoked the parol evidence rule as a substantive rule of law designed to give stability to written contracts, stating that evidence of prior oral negotiations (such as the alleged understanding that the $20,000 was a guaranteed profit) cannot be used to alter the clear terms of the final written agreement.
Dissenting - John A. Fogleman, Justice
Yes. The contract clause is latently ambiguous, and therefore the trial court was correct to admit parol evidence to determine the parties' true intent. The dissent argued that the majority improperly limited its analysis to patent ambiguities (those apparent on the face of the document). A latent ambiguity arises from extrinsic facts that make facially clear language uncertain. To discover a latent ambiguity, a court must consider outside evidence, such as the circumstances surrounding the contract's formation and industry custom. In the construction trade, terms like 'supervision' and 'actual cost' can have technical meanings where a fixed supervision fee is treated as separate from the reimbursable salary of an on-site superintendent. The trial court correctly considered this evidence, found an ambiguity, and its factual determination should be affirmed because it was supported by substantial evidence.
Analysis:
This case offers a classic application of the parol evidence rule, emphasizing a strict, 'four corners' approach to contract interpretation. The majority's holding reinforces the principle that parties are bound by the clear language of their written agreements and must be diligent in drafting to ensure the contract accurately reflects their entire understanding. The decision makes it more difficult for a party to introduce evidence of industry custom or prior negotiations to explain terms that a court deems facially unambiguous. The dissent champions a more contextual approach, arguing that extrinsic evidence is necessary to determine if a latent ambiguity exists, which better reflects the realities of commercial transactions and specialized trade usage.
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